27 Jan 2017

Supreme Industries has enjoyed a 25-30% reduction
in input costs which has helped it boost market share, especially in plastic
pipes and consumer products. The company expects to sustain the 20% CAGR in
sales it has achieved over the past five years. HCL Tech completed its $85mil
acquisition of Butler American Aerospace on January 3rd. Aurobindo Pharma
announced the acquisition of Generis Farmaceutica for EUR 135mil, to become the
largest supplier of generics in Portugal. The acquisition is seen as fair value
and EPS accretive. The company also announced USFDA approval for its generic
Levetiracetam sodium chloride injection for epileptic seizures. Lupin has
received USFDA approval for its generic Desoximatasone cream for skin disease
and for Cevimeline hydrochloride capsules for treating 'dry mouth' in Sjogren’s
syndrome.

25 Jan 2017

FDI flows in the first seven months of FY17
increased by 27% over the comparable period of FY16, reaching an aggregate of
$27.8bn. In calendar 2016, foreign portfolio investment went the opposite
direction, as FPIs sold a net $3bn in so-called “hot money”. The government
raised $3bn in the first eight months of FY17 by selling stakes in state-owned
enterprises, about 60% of its target for the year. By the end of 2016, India
had 1.1bn active mobile phone SIM cards, in a population of 1.3bn!

20 Jan 2017

Temporary effects of demonetization can be seen in
the latest PMI numbers. The December Services figure was 46.8, almost unchanged
from November. The Manufacturing number came in a 49.6, down from 52.3 in
October. Core sector growth in November was 4.9% compared to 6.6% in October;
the strongest growth came in coal production and electricity generation. Core
sector numbers contribute 38% of the Index of Industrial Production, which grew
5.7% in November compared to contraction of 1.9% the previous month. In both
periods, Capital Goods was the swing sector. Having contracted by 25.9% in
October, the sector grew by 15% in November. A clear beneficiary of
demonetization was the inflation rate: CPI dropped to 3.4% in November largely
thanks to food: vegetable prices fell by 14.6% and pulses by 1.6%. The RBI’s
MPC held rates at 6.25% while the RBI cut its GDP forecast for FY17 from 7.6%
to 7%.

18 Jan 2017

The third quarter results season is already upon us
with the bellwether IT stocks announcing numbers which were more or less in
line with expectations. TCS reported revenues ahead by 8.7% and profits up by
10.7%. The company announced the appointment of its CFO as CEO, replacing
predecessor Chandrasekhan, who has been appointed Chairman of Tata Sons Ltd.
Infosys reported revenues ahead by 8.6% and profits by 7%. Both companies
emphasized tough trading conditions and refined forward guidance slightly. A
move in the US Congress to amend H1-B visa requirements by raising the minimum
salary to $100k and remove the “masters’ degree” exemption could present an
additional headwind in future.

16 Jan 2017

The Dollar and US markets have dominated
the news since the Presidential election. At the end of the last trading week
before inauguration, both showed signs of running out of steam, as Mr. Trump’s
first press conference caused tremors in the currency market. In spite of some
good bank results, US equities were softer. In India, the first two weeks of
the year have witnessed a steady recovery in equities, as the Nifty added 214
points to close 2.6% up at 8400 after trading in a range of 3.3%. Average daily
trading volumes at $3bn remained below the twelve month trailing average.
Foreign portfolio selling continued as FPIs sold a net $386mil in cash equity,
while domestic institutions were net buyers of $413mil. Volatility was stable
with the India VIX trading between 13 and 16 before closing at 14 for a fall of
a point. Market breadth was strong, with advances ahead of declines by four to
one. Nifty futures closed at a premium of 0.75% to cash.

6 Jan 2017

In the period April to November, the
government recorded an increase of 15.1% in revenue from direct taxation to
$60.6bn and in indirect taxation of 26.2% to $81.2bn. The recent mobile
spectrum auctions added a further $4.7bn in revenue from upfront payments.
November CPI was 3.6%, well below expectations as prices for key food items
continued to soften: food inflation is running at 2.6% compared to a twelve
month trailing average of over 6%.WPI also receded slightly from 3.4% to 3.2%.

5 Jan 2017

As the year ended, the pace of USFDA
approvals picked up, especially for LUPIN. The company received approval for
its generic versions of Diclofenac for osteoarthritis pain management,
Desoximetazone anti-inflammatory ointment and Voricanazole tablets and oral
suspension for the treatment of fungal infections in children. Lupin expects
its investments in injectables, inhalers and dermatologicl treatments to
accelerate between now and 2020. Indraprashtha Gas may see a slowdown of about
5% in sale volumes due to shortage of cash in the third quarter. It also faces
a shortage of CNG converter kits as well as a slight slowdown in industrial
demand. Expansion in retail outlets continues, however, as does demand for
conversion of vehicles in the Delhi Capital are. TCS has been shortlisted to
handle the creation and management of an online interface for taxpayers in the
GST rollout.

4 Jan 2017

Demonetization had three key objectives:
reducing the 'black economy', attacking tax evasion amongst the rich and
expanding the tax base boost collections. There is increasing evidence that the
first is being achieved, though the second is beset with problems; including
evidence that note hoarders have been able to circumvent the exchange rules.
Late evidence implies, however, that the third objective will be achieved:
December quarter advance tax payments for individuals have increased by 38%. An
increase of this scale is sufficiently big to suggest a connection with
demonetization. At the end of December, the RBI raised the limits available for
note exchanges at banks, with a final exchange date now set at March 31st.

Earlier in the year, foreign investors
began to doubt the reform credentials of the Modi government, as it struggled
with the politics of passing necessary enabling legislation. At the close of
the year, we have three significant reforms to measure: first a new Bankruptcy
Act which is expected to ease the recovery process for non-performing loans,
particularly at state-owned banks. Second, the GST Constitutional Amendment Act
is in the process of implementation through a GST Council, which by now has
established many necessary operating rules and procedures. One major decision
remains to be addressed at the next Council meeting in early January: the
distribution of the proceeds between the centre and states. Finally, we had
demonetization, implemented quite decisively without any leakage but perhaps
with the unintended consequence of seeing off RBI Governor Rajan who is
believed to have opposed the idea.

3 Jan 2017

Negative investor sentiment arising from
the demonetization move left the market exposed to the sustained liquidity
drain towards the US in the absence of clarity on the outcome of the policy.
What is clear is that GDP growth in the third quarter of FY17 will be reduced
by some 1-2%, dragging the year’s outcome to somewhere in the 6.5-7% range. The
outcome depends on how quickly a recovery develops when the availability of new
currency notes catches up with demand and deferred purchases of discretionary
items are completed. Meanwhile, non-cash transaction volumes continue to rise.

2 Jan 2017

Since our last commentary global markets have been
mesmerized by the Trump phenomenon with liquidity continuing to be drawn
towards an increasingly overvalued US dollar and US equity markets. Notably
thee is no sign yet of earnings forecasts for US companies being upgraded to
match the resulting multiple expansion. In India, FPI withdrawals have
continued, to be replaced by domestic buying as investors took advantage of the
demonetization selloff to capture value. As a consequence, the Nifty gained
just 97 points to close the year at 8186 while trading in a range of 4.8%.
Average daily trading volumes subsided gently over the period, ending at $1.9bn
a day compared to a twelve month average of $3.2bn. Direction was largely
driven by the FPI action which resulted in a net sale of 4865mil in cash
equities; domestic institutions bought a net $360ml. Volatility tended also to
the downside, with the India VIX starting out at the high of 18 for the period
and declining to a low of 13 before closing at 16 for fall of two points.
Market breadth was weak with declines just ahead of advances with downside
concentration continuing in cash dependant consumer stocks. Nifty futures
closed at a narrow premium to cash.

We go into 2017 with a continuing overhang
of uncertainty. Expectations as to the impact of Trumpenomics on global markets
are a major concern, as are the implications for global trade policies. In
India, the overhang of demonetization may be much less enduring. The pace of production
of new notes suggests that a major turning point may come after about
mid-January. Whether is leads to a hockey-stick recovery in consumer demand is
not certain. At the last minute banks have started to announce sharp interest
rate reductions for loans as the attempt to recycle the exceptional liquidity
accumulated during demonetization. The Indian government is hopeful that this will
help boost consumer demand as well as private sector investment, as it
accelerates public sector investment.

About Himalayan Fund NV

The Himalayan Fund N.V. is an investment company with its primary objective to generate long-term capital gains for shareholders by investing in India.

This blog shares with you interesting, weekly news about the Indian economy. It provides insights about the financial situation in India and its market. The team of Himalayan Fund offers knowledge about investment opportunities relating to India.

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